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Investing in Cash and Bonds

Cash funds invest in cash deposits, for example, in a bank account, with a specified level of interest.

A bond is essentially a loan. Many governments and companies borrow money from investors to raise funds and they do so by issuing securities known as ?bonds?. In return for lending it money, the borrower promises to pay a pre-determined rate of interest in addition to paying back the original loan amount when the bond matures.

It's the safest form of investment. However, in some circumstances, when interest rates are low, the returns on cash funds may be less than the charges on the fund. Cash funds may not be suitable for long-term investments because of inflation, which over time erodes the real value of your savings.

Bonds tend to produce lower but more stable returns than higher risk assets, such as equities. There's still a risk these investments could go down in value and changes in interest rates can also cause the value of a bond to rise or fall.